US EARLY MORNING: US futures are lower, Netflix slammed after subscriber losses; some strategists say bearishness may be peaking out

EQUITIES: US equity futures opened lower, but have since been traversing sideways in overnight trade (RTY -0.1%, YM -0.2%, ES -0.4%, NQ -0.7%). The obvious focus is Netflix’ earnings (1.2% NQ weighting), where subscriber losses and soft guidance dragged shares lower by over 25% in after hours trading. Citi's strategists note that S&P 500 net positioning in the last week was the shortest since 2019, while 5-day outflows from ETFs were the highest on record. But Citi argued that bearishness was peaking around current levels. JPMorgan's strategists are not surprising by this positioning given the aggressive Fed hawkishness spooking investors, combined with higher commodity prices, the Russia-Ukraine war, as well as mixed global signals on COVID (some areas are reopening, but others are entering more restrictions). JPM's esteemed strategist Marko Kolanovic again makes the case for equity upside, arguing that sentiment and positioning are now too bearish; he remains constructive on equities and thinks that a near-term rally is likely, particularly in small-cap and high-beta market segments. JPM also makes the point that investors at this stage do not need to make a choice between growth vs value styles, since there are many stocks that have both attributes. For instance, energy, metals, mining names are traditionally classified as 'value', but have been growing earnings and now rank highly in quality and momentum styles, increasing their quant allocation appeal. And on the other side, international growth stocks that have sold off aggressively of late are now ranking highly for value scores – China tech stocks, for example (where officials are easing policy–in contrast to the Fed–which should support these names further). JPM suggests that investors can construct a 'barbell portfolio' of growth (tech, biotech, innovation) and value (metals, mining); "this is rarely the case and currently possible due to a specific confluence of macro factors such as the commodity super cycle, divergent monetary policy, and very large selloff in high-beta and growth stocks (domestic and international) in the first quarter."

TREASURIES: US yields are narrowing across the curve by 0-2.5bps, with major curve spreads mixed though little changed. As US real yields turned positive on Tuesday for the first time in almost two years, desks have renewed warnings that the upside in yields poses risks to stocks as the relative appeal of fixed income improves vs equities, as noted by Stifel’s strategists. The argument is that this could begin to weigh on traditional growth styles given that much of the appeal of these names is based on expectations of future earnings growth – higher rates and discount factors will lower the net present value of future earnings, and this is once again leading to some pockets of concern among US strategists, given the heavy concentration of tech/growth stocks in US indices. The impact of higher rates on other areas of the economy is also in focus; Tuesday’s housing starts and building permits data for March did not show any obvious signs that higher rates were hitting real estate just yet, despite mortgage rates picking up sharply of late. Today, existing home sales and weekly MBA mortgage applications data will be eyed within this context. There is also a 20yr bond auction to contend with ahead of Thursday’s sale of 5yr TIPS, which will be framed within the inflation debate (how will demand for inflation protection fare as some analysts make the case that peak inflation is in?). Full Day Ahead here, and full earnings list with expectations here.

EQUITY NEWS:

COMMUNICATIONS:

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  Netflix Inc (NFLX) - Tumbled over 25% after hours following its Q1 results, where it reported subscriber losses for the first time in more than a decade, and gave soft guidance. Q1 EPS 3.53 (exp. 2.89), Q1 Revenue USD 7.87bln (exp. 7.93bln). Q1 Net Subscriber Additions: -0.2mln (exp. +2.5mln); NFLX said macro factors, including sluggish economic growth, increasing inflation, geopolitical events such as Russia’s invasion of Ukraine, and some continued disruption from COVID were likely having an impact. Ahead, the streaming giant sees Q2 EPS at 3.00 (exp. 3.02) and sees Q2 revenue at USD 8.05bln (exp. 8.23bln); Q2 streaming paid net change is expected to fall by 2mln (exp. +2.4mln), with Q2 streaming paid memberships seen at 219.64mln (exp. 227.7mln). Netflix said it was looking to create a cheaper, ad-supported tier, adding that advertising was an exciting opportunity for the streaming giant. It will also test ways to charge for account sharing this year. (Newsquawk)


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  The Walt Disney Company (DIS), Roku (ROKU) - In after hours trading, Disney dropped 4.2% and Roku slipped by 6.1%, both in sympathy with Netflix as it reported subscriber losses and guided further subscriber losses ahead.


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  Twitter (TWTR) - Elon Musk "scrambling" to put together buyout bid using other people's cash, according to sources. (NY Post)


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  Nintendo Co. (NTDOY) - A worker alleged that Nintendo and a contracted firm violated their rights to unionise, according to a filing with the National Labor Relations Board. (Axios)


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  Omnicom Group (OMC) - Q1 adj. EPS USD 1.39 (exp. 1.30), Q1 revenue USD 3.41bln (exp. 3.28bln); organic revenue growth +11.9%. Raised its FY22 organic revenue growth view to up 6.0% to 6.5% (prev. up 5% to 6%). (OMC)

TECH:

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  International Business Machines Corp (IBM) - Gained 1.5% after hours following Q1 metrics which beat on the top- and bottom-lines. Q1 adj. EPS 1.40 (exp. 1.38), Revenue USD 14.2bln (exp. 13.85bln), Q1 adj. gross margin 52.9% (exp. 54.4%). Q1 consulting revenues were +13% Y/Y at USD 4.83bln (exp. 4.62bln); software +12% Y/Y at USD 5.77bln (exp. 5.7bln); infrastructure revenues were -2.2% Y/Y at USD 3.22bln (exp. 3.24bln); financing revenues -26% Y/Y at 154mln (exp. 191.3mln). IBM affirmed its FY22 FCF view of USD 10.0-10.5bln, and CEO said it now sees revenue growth for FY22 at the high-end of our model (prev. saw mid-single digit growth). (Newsquawk)


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  ASML (ASML) - Q1 earnings and revenues topped expectations, and bookings were seen as strong, but some saw guidance as soft. (Reuters)


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  Microsoft (MSFT) - Xbox research and design chief Chris Novak is leaving after nearly 20 years. (Polygon)


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  Nokia (NOK), Microsoft (MSFT) - Nokia selected to supply data centre switching portfolio for Microsoft’s data centre networks. (NOK)

INDUSTRIALS:

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  Automakers - European passenger car registrations -12.3% Y/Y in Q1, and -20.5% Y/Y in March (prev. -5.4% Y/Y in Feb). (ACEA)


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  Airlines, travel names - Biden administration to appeal a ruling that struck down COVID mask mandates on planes and other public transport. (CNBC)


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  Alaska Airlines (ALK) - A hundred dispatchers represented by the Transport Workers Union ratified a new five-year contract. The new contract includes increased pay with a mid-term market review to ensure wage rates stay competitive, along with enhanced benefits and streamlined training. (ALK)


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  CSX Corp. (CSX) - Reached a tentative agreement with the SMART-TD to provide Trainmen and Yardmasters with monthly advance payments on future wage adjustments anticipated in settlement of the 2020 round of national bargaining. (CSX)


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  Plug Power (PLUG), Walmart (WMT) - Plug Power CEO told CNBC that Walmart will be a key green hydrogen customer, and expects Plug Power will expand its deal to supply more than 20 tonnes/day in the future. (CNBC)


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  Lockheed Martin Corporation (LMT) - Awarded a USD 396.7mln Navy contract. (DoD)


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  Equifax (EFX), Fiserv (FISV) - The two partner to advance digital commerce with data. (FISV)


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  CRH (CRH) - H1 group sales, EBITDA, and margins are expected to be ahead of prior year, while noting a positive start to the year with good underlying demand. (RTE)

MATERIALS:

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  Rio Tinto (RIO) - Quarterly Pilbara iron ore output 71.7mln tons (prev. 76.4mln tons Y/Y), Pilbara iron ore shipments 71.5mln tons (prev. 77.8mln tons Y/Y). Quarterly mined copper 125k tons (prev. 120.5k tons Y/Y). Quarterly aluminium production 736k tons (prev. 803k tons Y/Y). Said Q1 production was challenging as expected. Market expectations have been revised downwards amid sustained high inflation, Ukraine war and resurgence of lockdowns in China. (RIO)


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  Turquoise Hill Resources (TRQ) - Q1 gold production -60% at 59K ounces, Q1 copper production -33% at 30.3K tonnes. Raised FY22 gold production view to 135-165K ounces (prev. saw 115-165K ounces), and reiterated its FY22 copper production view 110-150K tonnes. (TRQ)

ENERGY:

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  Inventories - API weekly energy inventories reportedly showed crude stocks -4.5mln (exp. +2.5mln), Cushing stocks +0.1mln, gasoline stocks +2.9mln (exp. -1.0mln), distillate stocks -1.7mln (exp. -0.8mln). The DOE's weekly energy report will be released at 15:30BST/10:30EDT on Wednesday.


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  Shell (SHEL) - Reportedly starts withdrawing staff from Russia JVs. (Bloomberg)


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  EOG Resources (EOG) - Anticipates Q1 2022 net loss of USD 2.82bln on the mark-to-market of its financial commodity derivative contracts. (EOG)


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  US Silica Holdings (SLCA) - To increase prices for most of its non-contracted diatomaceous earth, perlite and cellulose products. Price increases will range up to 25%. SLCA said that the increase was driven by ongoing inflationary pressures around raw materials, packaging, labour, logistics and maintenance expenses. (SLCA)

CONSUMER DISCRETIONARY:

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  Amazon.com (AMZN) - US NLRB union seeking to represent Amazon workers at a warehouse in New Jersey withdrew its petition for a unionisation vote; Reuters said that the reason for the withdrawal was not immediately clear. (Reuters)


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  L'Oreal (LRLCY) - Q1 results supported by firm demand for luxury products, was resilient to China lockdowns. (Reuters)


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  Continental (CTTAY) - Resumes production at Russian plant in Kaluga. (FAZ)

CONSUMER STAPLES:

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  Danone (DANOY) - Danone’s Q1 results saw its fastest sales growth in seven years, also reiterated its 2022 targets. Separately, Lactalis advisor Perella Weinberg is reportedly considering scenarios for a partial or total takeover of Danone. according to La Lettre. (Bloomberg, La Lettre)


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  Heineken (HEINY) - Q1 revenue rose more than expected, but it left guidance unchanged. (Bloomberg)


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  Stride Learning (LRN) - Rose 5.5% after hours after Q3 earnings and revenue topped expectations, and it raised FY22 revenue guidance. Q3 EPS USD 1.02 (exp. 0.84), Q3 revenue USD 421.7mln (exp. 411.1mln). Now sees FY22 revenue between USD 1.645-1.66bln (exp. 1.63bln, prev. 1.62-1.63bln). (LRN)


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  Bunzl (BZLFY) - Left guidance unchanged, but sees OM slightly higher than historical levels. (MarketWatch)

FINANCIALS:

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  Berkshire Hathaway (BRK-B) - The Second largest US pension fund CalPERS will back shareholder proposals that seek to replace Warren Buffett as Chairman of Berkshire Hathaway, though would remain CEO. (Reuters)


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  The Goldman Sachs Group (GS) - Goldman is scrapping its pandemic office perk of offering staff free lunch. (Bloomberg)


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  Credit Suisse (CS) - Earnings for Q1 will be negatively impacted by a decision to increase litigation provisions. (FT)


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  Interactive Brokers Group (IBKR) - Fell 1.5% after hours after Q1 revenues missed expectations. Q1 EPS 0.82 (exp. 0.82), Q1 revenue USD 692mln (exp. 696mln). Customer accounts +36% to 1.81mln, customer equity +8% to USD 355.9bln, total DARTs2 -24% to 2.52mln, cleared DARTs -25% to 2.23mln, customer credits +9% to USD 92.5bln, customer margin loans +14% to USD 48.2bln. (IBKR)


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  First Horizon National (FHN) - Q1 adj. EPS 0.38 (exp. 0.35), Q1 revenue USD 707mln (exp. 707.4mln). NII -4% Q/Q at USD 479mln, driven by a reduction in net merger-related and PPP benefits. CEO said higher long-term rates and global uncertainty impacted countercyclical businesses, though its balance sheet is well positioned to benefit from rising short-term rates. (FHN)


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  GAM (GMHLY) - Interim statement reported AUM 30bln, Group AUM 94.8bln (prev. 100bln), expects market environment to remain challenging. (Investment Week)


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  UK names - Competition regulators will be able to directly enforce consumer laws and will have powers to fine firms up to 10% of global revenue for mistreating customers. (Reuters)

HEALTH CARE:

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  Johnson & Johnson (JNJ) - Johnson & Johnson and its Janssen unit announced a USD 77mln settlement with the State of Alabama resolving current and future opioid-related claims. (JNJ)


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  Teva Pharmaceuticals (TEVA), MedinCell (MEDCL) - FDA issued a Complete Response Letter (CRL) regarding the New Drug Application (NDA) for TV-46000/mdc-IRM for the treatment of schizophrenia. Teva is reviewing its next steps based on the letter and will work closely with FDA to address their recommendations. (TEVA)

20 Apr 2022 - 09:43- EquitiesResearch Sheet- Source: Newsquawk