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Market Snapshot
briefing.com
| Dow | 33988.05 | -168.59 | (-0.49%) | | Nasdaq | 11934.25 | -179.56 | (-1.48%) | | SP 500 | 4125.12 | -38.88 | (-0.93%) | | 10-yr Note | +2/32 | 3.65 |
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| | NYSE | Adv 958 | Dec 1967 | Vol 813 mln | | Nasdaq | Adv 1345 | Dec 3230 | Vol 5.0 bln |
Industry Watch
| Strong: -- |
| | Weak: Communication Services, Utilities, Consumer Discretionary, Consumer Staples |
Moving the Market
-- Sense that the market is due for consolidation driving broad retreat effort
-- Mixed reactions to corporate news
-- Huge loss in Alphabet on concerns the company is behind in the AI space, dragging on the broader market
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Closing Summary
08-Feb-23 16:25 ET
Dow -207.68 at 33948.96, Nasdaq -203.27 at 11910.54, S&P -46.14 at 4117.86
[BRIEFING.COM] Equities spent the day in retreat mode due to a sense that the market got overextended and was due for some consolidation on the back of rate-hike and valuation concerns.
Selling efforts were broad based but generally modest in scope from a sector and index standpoint. A notable exception in that regard was the S&P 500 communication services sector (-4.1%). It was down big today with both Alphabet (GOOG 100.00, -8.04, -7.4%) and Meta Platforms (META 183.43, -8.19, -4.3%) down big. Lumen Technologies (LUMN 3.95, -1.04, -20.8%), which is a much smaller component in the space, plunged following its earnings report and issuance of disappointing guidance.
The weight of Alphabet, however, was inescapable. Shares of GOOG were reeling on concerns the company is behind in the AI space -- a concern that was magnified today by a report that its Bard AI bot provided an incorrect answer at the company's launch event.
All 11 S&P 500 sectors registered losses today with the real estate (-0.3%) and health care (-0.3%) sectors enjoying the slimmest declines. The latter was bolstered by a nice gain in CVS Health (CVS 88.96, +2.98, +3.5%) after the company reported quarterly results and announced the acquisition of Oak Street Health (OSH 35.23, +1.55, +4.6%) for $39/share in cash.
Today's weakness followed on the heels of President Biden's State of the Union address last night in which he called for a billionaire minimum tax, a quadrupling of the tax on corporate stock buybacks, and raising the debt limit without conditions. He also made a case for more antitrust regulation of technology companies.
Given the divided Congress, the market wasn't overly concerned about new tax policies being passed, but it was certainly interested in what happens with the debt limit discussions and the possibility of increased regulations.
On a related regulatory note, the U.K.'s CMA said that Microsoft's (MSFT 266.73, -0.83, -0.3%) planned combination with Activision Blizzard (ATVI 72.89, -2.71, -3.6%) could harm U.K. gamers.
Treasuries closed with modest gains today. Things improved after the $35 billion 10-yr note auction was met with some spectacular demand. The high yield (3.613%) stopped through the when-issued yield by three basis points while the bid-to-cover ratio (2.66x) and indirect takedown (79.5%) were well above their prior 12-auction average. The 10-yr note yield settled at 3.65% and the 2-yr note yield settled at 4.45%.
- Nasdaq Composite: +13.8% YTD
- Russell 2000: +10.3% YTD
- S&P Midcap 400: +9.7% YTD
- S&P 500: +7.3% YTD
- Dow Jones Industrial Average: +2.4% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index 7.4%; Prior -9.0%
- December Wholesale Inventories 0.1% (Briefing.com consensus 0.5%); Prior was revised to 0.9% from 1.0%
Ahead of tomorrow's open, AbbVie (ABBV), Baxter (BAX), CyberArk (CYBR), Duke Energy (DUK), Hilton (HLT), Huntington Ingalls (HII), Kellogg (K), Masco (MAS), PepsiCo (PEP), Philip Morris Intl. [MO], Ralph Lauren (RL), Sealed Air (SEE), and Tapestry (TPR) are among the notable names reporting earnings.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 194,000; prior 183,000) and Continuing Claims (prior 1.655 mln)
- 10:30 ET: Weekly natural gas inventories (prior -151 bcf)
Looking ahead to Thursday
08-Feb-23 15:35 ET
Dow -211.20 at 33945.44, Nasdaq -200.69 at 11913.12, S&P -46.46 at 4117.54
[BRIEFING.COM] Things are little changed ahead of the close.
Affirm (AFRM), Mattel (MAT), MGM Resorts (MGM), O'Reilly Auto (ORLY), Paycor (PYCR), Robinhood Markets (HOOD), Sonos (SONO), Walt Disney (DIS), Wynn Resorts (WYNN), and XPO, Inc. (XPO) headline the earnings reports after today's close.
Ahead of tomorrow's open, AbbVie (ABBV), Baxter (BAX), CyberArk (CYBR), Duke Energy (DUK), Hilton (HLT), Huntington Ingalls (HII), Kellogg (K), Masco (MAS), PepsiCo (PEP), Philip Morris Intl. [MO], Ralph Lauren (RL), Sealed Air (SEE), and Tapestry (TPR) are among the notable names reporting earnings.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 194,000; prior 183,000) and Continuing Claims (prior 1.655 mln)
- 10:30 ET: Weekly natural gas inventories (prior -151 bcf)
Market clings to session lows
08-Feb-23 15:00 ET
Dow -168.59 at 33988.05, Nasdaq -179.56 at 11934.25, S&P -38.88 at 4125.12
[BRIEFING.COM] Things are little changed in the last half hour. The main indices are clinging to narrow ranges near their worst levels of the session.
Energy complex futures settled the session in mixed fashion. WTI crude oil futures rose 1.6% to $78.48/bbl and natural gas futures fell 6.5% to $2.40/mmbtu.
The S&P 500 energy sector (-0.6%) traded near the middle of the pack for the 11 sectors.
Fed Governor Christopher Waller (FOMC voter) said the inflation fight is not over and rates may need to be higher for longer, adding he is not seeing signals that inflation will fall quickly but that wage data is moving in the right direction, according to CNBC.
Tapestry underperforming in S&P 500 ahead of earnings
08-Feb-23 14:30 ET
Dow -134.07 at 34022.57, Nasdaq -172.87 at 11940.94, S&P -38.64 at 4125.36
[BRIEFING.COM] The S&P 500 (-0.93%) is still in second place at this point on Wednesday afternoon, now little changed in the last half hour.
S&P 500 constituents Jack Henry (JKHY 166.20, -15.26, -8.41%), Paycom Software (PAYC 317.56, -26.96, -7.83%), and Tapestry (TPR 42.75, -2.248, -5.48%) pepper the bottom of the S&P. JKHY and PAYC slip after earnings, while TPR is slated to release Q2 results tomorrow morning.
Meanwhile, Fortinet (FTNT 59.49, +5.71, +10.62%) is today's top performer moves higher after billings beat modestly and guidance for 2023 came in better than expected.
Gold higher on Wednesday as dollar slips
08-Feb-23 14:00 ET
Dow -135.42 at 34021.22, Nasdaq -188.68 at 11925.13, S&P -40.68 at 4123.32
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-1.56%) remains as the worst-performing major average, now near lows.
Gold futures settled $5.90 higher (+0.3%) to $1,890.70/oz, helped along by a modestly weaker dollar.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $103.36.
Page One
Last Updated: 08-Feb-23 09:04 ET | Archive
Fixed on a lower open
At this fixed point in time, the stock market looks poised to start today's session on a modestly lower note.
Currently, the S&P 500 futures are down 20 points and are trading 0.5% below fair value, the Nasdaq 100 futures are down 58 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 120 points and are trading 0.3% below fair value.
We are being deliberate with our word choice in use of the word "fixed," because this stock market has not had any real fixation on how the market has opened in 2023. Rather, the fixation has been on how the market does after it opens, and most days, even when there has been a negative slant in the futures market before the open, the stock market has bounced back from any initial weakness.
The S&P 500 started the year at 3,839.50, it hit a high of 4,195.44 on February 2, and it closed yesterday at 4,164.00 after hitting 4,088.39 at its low. In other words, the stock market has been fixed on trading higher and yesterday was no different.
It digested the remarks from Fed Chair Powell in a roller-coaster fashion, but ultimately closed near its highs for the day after Microsoft (MSFT) helped ramp up the AI rally and buyers ramped up their buy-on-the-dip inclination when the S&P 500 slipped below 4,100.
Accordingly, to see the futures market signal a lower open doesn't generate the same fear and loathing that it did last year.
It could at some point down the road, but at this fixed point, it can be explained away as a normal condition for a market that has gone a long way in a short amount of time, leaving it ripe for some profit-taking interest.
The real constraint, we would argue, is one of valuation. At 18.5x forward twelve-month earnings, the S&P 500 is trading at a roughly 8% premium to its 10-yr historical average. The constraining factor is that earnings estimates are not fixed. They are dynamic, and while the stock market has been trending higher since the start of the year, earnings estimates have been trending lower.
According to FactSet, the consensus forward twelve-month earnings estimate stood at $229.31 on December 30. Today, it sits at $225.61.
This is not to say that stocks still can't trade higher. They can. The point is that the path to further gains is unlikely to be as easy as the rebound effort in 2023 has been so far.
Shifting gears, President Biden laid out a path he thinks should be followed in his State of the Union address last night. Among other things, he called for Congress to pass a billionaire minimum tax, to quadruple the tax on corporate stock buybacks, and to raise the debt limit without conditions. He also made a case for more antitrust regulation of technology companies.
These proposals were consistent with previews of the speech heard yesterday when the stock market ended with a bullish bias, so we won't claim that they are a basis for the negative disposition of the futures market this morning.
The earnings results since yesterday's close really aren't either. There were some good reports (and reactions) and some not-so-good reports (and reactions).
Uber (UBER), Fortinet (FTNT), Enphase Energy (ENPH), and Under Armour (UAA) are some notable companies that have seen good reactions, whereas Chipotle Mexican Grill (CMG), Lumen Technologies (LMN), Capri Holdings (CPRI), and Jack Henry & Associates (JKHY) are some of the notable companies that have seen not-so-good reactions.
Call it mixed then in terms of the earnings impact on the futures market, which itself looks fixed on a negative start.
-- Patrick J. O'Hare, Briefing.com
Under Armour was unable to shield off rising inventories in Q3, clipping gross margins (UAA)
Under Armour (UAA -9%) surpassed EPS and revenue expectations in Q3 (Dec) while also upping its FY23 (Mar) earnings forecast. However, shares of the sports apparel manufacturer quickly reversed their initial over +8% spike during pre-market trading after investors digested a series of rough patches in the quarter. UAA could not shield itself from unfavorable economic conditions that caused soaring inventory levels and gross margin erosion in the quarter.
- As has been well-documented over the past several months, apparel inventory levels remain elevated across the industry; UAA is no exception. The company's inventories were up 50% yr/yr and 9% sequentially to $1.2 bln.
- However, the massive jump can be partly attributed to the lean stock UAA had on hand last year due to ongoing supply chain issues. Management commented that a large chunk of the increase in Q3 and what should remain high in subsequent quarters is due to bringing UAA back to normalized levels appropriate for its $6.0 bln brand.
- Without more favorable demand, the glut in inventory forced UAA to be more promotional during the quarter, taking a 400 bp bite out of gross margins, which stumbled 650 bps yr/yr to 44.2%.
- UAA expects gross margins to contract by the high end of its prior 375-425 bp decline projection in FY23.
- UAA is also contending with heightened input costs, freight expenses, and FX headwinds. Of the expected 425 bp decline yr/yr in FY23, UAA anticipates two-thirds of it to branch from these challenges. This is important to note since these obstacles, such as FX impacts, are clearing quicker than waning consumer demand.
- On a lighter note, UAA's Footwear segment rocketed 25.3% higher yr/yr in the quarter, similar to what we have seen recently from competitors in this space and boding well for footwear retailers like Foot Locker (FL), which reports JanQ earnings on February 24.
- For example, Deckers Outdoor's (DECK) HOKA brand sales surged 90.8% yr/yr in DecQ.
- Meanwhile, NIKE (NKE) registered 25.0% growth in its Footwear business in NovQ.
- The robust Footwear sales offset the 2.1% and 1.7% decline in Apparel and Accessories, respectively, helping propel total revs 4.6% higher yr/yr to $1.6 bln.
- Looking ahead, UAA reiterated its FY23 revenue forecast of a low single-digit percentage increase yr/yr while hiking its FY23 EPS outlook to $0.52-0.56 from $0.44-0.48 due partly to encouraging FX developments.
UAA may be amid a sell-off as investors take profits following a 20+% run to start the year and continually elevated inventories, which could continue to eat into margin growth. However, there were silver linings in the quarter, such as improving FX headwinds, solid demand characteristics, and superb footwear sales. Additionally, incoming CEO Stephanie Lenard, who led Marriott's (MAR) digital transformation, should help bolster UAA's e-commerce presence, where it has been investing heavily.
Chipotle Mexican Grill rolling lower following rare earnings miss (CMG)
Chipotle (CMG -5%) is heading lower today following a rare earnings miss with its Q4 report last night. CMG came into this report having reported EPS beats of $0.26 or more in six of the past seven quarters and had missed on EPS only once in the past five years. So to see CMG miss on EPS and revenue was pretty shocking to see.
- Comps are a very important metric and that came in at +5.6% in Q4, generally in-line with prior guidance of mid to high-single digits. However, it was toward the lower end of that range. Looking ahead, CMG expects Q1 comps in the high-single-digits despite January comps being very strong in the low-double-digits. However, January was lapping easy comps due to Omicron last year. So that benefit will wane as the quarter progresses. Further out, CMG expect comps to moderate as it laps menu price increases in early Q2 and the middle of Q3.
- So, what happened? CMG saw a lower than expected benefit from Garlic Guajillo Steak and faced a headwind from loyalty accounting. CMG was also lapping the popular brisket limited-time menu addition last year. Also, margins were a bit light, impacted by a higher level of sick pay and medical claims than expected. Furthermore, the benefit of menu price increases and lower avocado prices were blunted by elevated costs across the board, most notably, in dairy, tortillas, beans, rice and salsa.
- It was not all bad news on the cost side. Labor has been an issue for many restaurants, but CMG says December was one of its best months in the past two years for both hourly and salary turnover rates. Staffing levels continue to improve with 90% of restaurants being fully staffed. Also, delivery expenses are declining as CMG is seeing a surge in return to in-restaurant dining, which makes sense as we get further from the pandemic. Delivery transactions in Q4 declined 15% yr/yr. CMG figured digital would kind of normalize in this high-30% range and it's currently at 37% now.
- In terms of menu innovation, CMG is pretty excited about 2023, which will consist of 1-2 LTOs (limited time only). Most prominent is Chicken Al Pastor, which has been validated and ready to be rolled out in the near future. CMG says it's operationally simple to execute while still providing a new and exciting flavor that drives transactions and sales. CMG also recently launched a new lineup of Lifestyle Bowls that cater to contemporary wellness habits.
Overall, we have to say we were pretty shocked to see CMG miss on earnings, which is a very rare occurrence. It made us double and triple check the numbers. The good news is that the stock is holding up better than we expected and that is despite the stock having rallied +22% YTD in 2023. Comps look like they are going to moderate in the next few quarters as CMG laps price increases, but demand seems to be holding up well.
CVS Health looking lively after its $10.6 bln OSH bid and upbeat Q4 results, long-term goals (CVS)
CVS Health (CVS +4%) is looking to reverse its shares' recent downward trend following upbeat Q4 results and its bid to acquire Oak Street Health (OSH +4%) for $39/share, or around $10.6 bln, at a valuation of roughly 3.5x FY23 revenue. After the WSJ broke the news that the two companies were nearing a deal yesterday, OSH shot up around 30%, signaling that an agreement was all but certain. OSH operates primary care centers within the U.S. serving Medicare beneficiaries, so the merger would significantly enhance CVS's exposure to this space. CEO Karen Lynch expressed last month that Medicare is a strategic growth area for the company in 2023 and beyond. The transaction should close this year.
Reports of a handshake between CVS and OSH have been circling for around a month, with Bloomberg reporting that CVS was interested in acquiring OSH in early January. At the time, investors were uneasy about a possible $10+ bln purchase, especially since it followed CVS's recent $8.0 bln deal to acquire Signify Health (SGFY). With macroeconomic conditions remaining highly uncertain, two high-price tag deals back-to-back did not sit well with the market.
However, investors are applauding the merger today, likely because it coincides with encouraging Q4 earnings results and CVS providing more clarity on its longer-term financial targets. The company reiterated its FY23 adjusted earnings guidance of $8.70-8.90 and targeted adjusted EPS of approximately $9.00 in FY24, expanding to $10.00 by FY25. Additionally, confirming rumors of a bid to acquire OSH removes uncertainty, which typically translates to a positive reaction.
- Shifting to Q4 figures, in typical fashion, CVS toppled adjusted EPS estimates in Q4 on consistent revenue growth of 9.5% yr/yr to $83.85 bln, which cruised past consensus. CVS has not registered quarterly sales growth below 9% for seven-straight quarters, a testament to its numerous resilient lines of business.
- Sales climbed across each of CVS's segments. In its most prominent business, Pharmacy Services, where labor tightness has reportedly led to reduced operating hours, revs jumped 11.2% yr/yr to $43.75 bln, ignited by higher volume, growth in specialty pharmacy, and brand inflation.
- Health Care Benefits grew similarly at 11.3% to $23.03 bln fueled by broad-based strength. CVS's medical benefit ratio (MBR) did tick down by 1 pt yr/r to 86%, although this was primarily the result of lapping net favorable impacts of COVID-19.
- The Retail business was the slowest grower in Q4, a recurring theme throughout most of FY22, expanding revs by just 4.0% yr/yr to $28.18 bln. Sales were partly led by an elevated cough, cold, and flu season compared to last year, partially offset by decreased COVID-19 vaccinations and testing.
Overall, CVS rang up a solid quarter, which shone even brighter when stacked against NovQ numbers from rival Walgreens Boots Alliance (WBA), which continues to experience sales pressure from its underperforming AllianceRx business. We like CVS's aggressive M&A moves as it puts less strain on the company's slowing Retail business and view its purchase of OSH, which has boasted over 50% annual revenue growth each year since its 2020 IPO, as a healthy additional step toward further diversification.
Uber riding higher as red-hot rideshare business fuels strong Q4 results and outlook (UBER)
Uber (UBER) is riding high after delivering exceptional 4Q22 results that easily surpassed expectations in a quarter that CEO Dara Khosrowshahi characterized as the company's strongest in its history. With adjusted EBITDA reaching a record high of $665 mln, well above UBER's guidance of $600-$630 mln, and with Mobility gross bookings growing by 19% to a new quarterly record of $14.9 bln, it's hard to argue with that proclamation.
Several factors are combining to reignite UBER's rideshare business, which saw trips also reach a quarterly record high of 2.1 bln, up 19% yr/yr.
- An increasing number of employees are returning to the office and are commuting using public transportation, including rideshares, as vehicle prices have skyrocketed. The return to the office has enabled in-person meetings to replace the virtual meetings that became a staple during the pandemic. It's been widely understood for some time that the resurgence in leisure travel demand is providing UBER with a lift, but this return to normalcy in the workplace is having an ever-increasing impact on Mobility's growth.
- Relatedly, demand for more profitable airport rides remains robust, and there are plenty of drivers available to make those trips. In fact, active drivers reached an all-time high in Q4 and continued to grow in January as more people look for ways to supplement their incomes.
- Due to the strong driver supply, UBER is able to pull back further on the incentives that cut into its margins and profits a year ago. This combination of increasing airport rides and fewer driver incentives led to a 76% yr/yr surge in Mobility adjusted EBITDA to $1.0 bln.
The story isn't nearly as bullish in the Delivery segment, but that business is still holding up better than many had expected as pent-up demand for traveling and dining out present stiff headwinds.
- Delivery gross bookings edged higher by 6% to $14.3 bln, continuing its downward trend in growth. In Q3 and Q2, gross bookings were up by 7%, slipping from the 12% increase seen in Q1.
- However, even though gross bookings growth is sliding lower, Delivery is still becoming more profitable. The segment generated adjusted EBITDA of $241 mln in Q4, up from $181 mln last quarter.
- Delivery take rate improved to 20.5% from 18.0% in the year-earlier quarter, with UBER also crediting better network efficiencies and increased advertising revenue for the jump in adjusted EBITDA.
Any concern that macroeconomic uncertainties may slow UBER down were greatly eased by the company's solid 1Q23 guidance.
- Specifically, UBER is forecasting gross bookings growth to accelerate to 20-24%, translating to a range of $31.0-$32.0 bln.
- Likewise, adjusted EBITDA is expected to continue its upward track, reaching $660-$700 mln, representing a yr/yr increase of over 300% at the midpoint.
The main takeaway is that UBER's Mobility segment is firing on all cylinders and there's no slowdown in sight as the return to office and robust travel demand trends bolster its growth. Its strong results should bode well for rival Lyft (LYFT), which is set to report earnings after the close tomorrow, but it has become apparent that UBER's lead over LYFT has expanded in recent quarters.
Leggett & Platt's Q4 results and FY23 outlook not sitting comfortably with investors (LEG)
Shares of Leggett & Platt (LEG -3%) are getting tripped up on an earnings and sales miss in Q4 generated by lingering weaknesses in the macroeconomic environment. The manufacturer of bedsprings, seat suspension systems, and other furniture hardware saw its volumes shrink yr/yr for the sixth consecutive quarter, illuminating the challenging demand landscape as residential end markets remain a sore spot.
Over the past few months, we have heard from many home furnishing retailers about the obstacles the current housing market is presenting. For example, in December, RH (RH) commented that the housing market remains in "freefall" and projects that current conditions worsen before they improve. Furthermore, MillerKnoll (MLKN) expressed in late December that with home sales slowing, it expected continual softening of demand. Meanwhile, La-Z-Boy (LZB) paused its share buybacks due to current demand dynamics in OctQ.
Many of these organizations, including others in the industry, like Wayfair (W) and Williams-Sonoma (WSM), are reporting DecQ and JanQ earnings over the next month. LEG's Q4 report does not set a bullish tone ahead of these companies' earnings reports.
- Turning to LEG's Q4 results, the company's EPS of $0.39 missed its projected range of $0.42-0.57. However, LEG's sales decline of 10% yr/yr to $1.20 bln did meet the midpoint of its $1.15-1.25 bln outlook. The declining sales growth was due to continually falling volumes, which took a 12% tumble yr/yr in the quarter.
- More specifically, LEG's Bedding Products and Furniture, Flooring & Textile Products segments were the laggards in the quarter, with revenue sinking 19% and 12% yr/yr, respectively.
- Within Bedding Products, U.S. and European markets experienced ongoing demand weakness. LEG expects demand in 2023 to remain consistent with 2022 levels, albeit with modest increases in volumes in 2H23.
- In Furniture, Flooring & Textile Products, demand at lower price points remained soft, and LEG's customers are working through current inventory levels. LEG expects lower volumes through at least 1H23.
- On a more bouncy note, LEG's Specialized Products segment, comprised of automotive, aerospace, and other industrial end markets, registered 15% sales growth in Q4 on a 10% bump in volumes. LEG was relatively upbeat when discussing its outlook regarding this segment, expecting solid demand across most of its business lines to continue in 2023.
- Still, LEG's FY23 guidance was not very confidence-inspiring, guiding to EPS of $1.50-1.90, missing analyst expectations, and revs of $4.8-5.2 bln, translating to a 3% decline yr/yr at the midpoint.
Bottom line, demand for bedding and other home furniture products will remain constrained as long as the housing market continues to experience disruptions. LEG's Specialized Products segment does help defend against this unfavorable dynamic, and management noted it would focus on mitigating the impacts of market challenges going forward. However, the current level of uncertainty gives us pause.
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