Nike Inc

What’s happened? Nike reported Q1 FY22 results, yesterday after market close,

with revenue 2% below estimates and EPS slightly ahead on better-than-
expected gross margin expansion. Supply chain disruption might be temporary

but led management to lower its FY 22 guidance. We see consensus cutting FY
EPS 2022 estimates by 10 to 15% leaving the stock at a stretched valuation. We
recommend holding to position and look for $148 key support level.

Welspun India

We are reiterating our buy recommendation on Welspun India (WEL.IN) as the stock reached new highs, gapping up more than 14% and breaking out of a cup-with-handle base. Welspun is benefiting from the shift by global retailers to countries like India in order to diversify their product lines. The company is expanding significantly in all its segments to meet the increasing international demand. Consensus calls for a revenue and net income CAGR of 7% and 16% in FY21-23, respectively, driven by diversification in the flooring and advanced textile segment. Welspun has been able to control its leverage with healthy cash generation. For more details

European Weekly Summary

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • We recommend a cautious approach toward European equities, given the rising distribution day count and narrowing of leadership, along with indices breaching key short-term areas of support.
  • The Stoxx 600 was moved to an Uptrend Under Pressure last week after it breached its 50-DMA on rising distribution day count (seven) and broke below its 100-DMA yesterday for the first time since it started its uptrend on November 4, 2020 (follow-through day).
  • A majority of country indices trade between their 50- and 200-DMA. The number of shares breaking out of consolidation is at a historical low. Average distribution among individual names is significantly rising.
  • In terms of groups, short-term momentum is rising among Health Care, Capital Equipment, and Consumer Staple names.
  • Last week, we added Darktrace (DARK.GB) and Rentokil Initial (RTO.GB) to our Focus List and removed Kering (KER.FR) and Moncler (MONC.IT) from our Focus List.
  • Actionable ideas from the Focus List include: Ashtead (AHT.GB), Rentokil Initial (RTO.GB), and B&M European Value Retail (BME.GB).

O’Neil Consumer/Retail Weekly

  • Batob Bang (259.BD; $4B market cap): We are adding British American Tobacco Bangladesh to our Frontier Markets Focus List as the stock is breaking out of a stage-two cup-with-handle base on strong volume. British American Tobacco Bangladesh (BATBC) is a subsidiary of British American Tobacco, which holds a 73% stake in it. Duty hikes by the government, strong potential for exports, and a high payout ratio are the key positives for the stock. In Q2 FY21 revenue grew 42.7% y/y aided by a weak base. Compared with 2019, revenue grew 37.3% y/y. Gross margin expanded by 180bps to 60%. On a q/q level, it expanded by 790bps. See our report here.

Lululemon

We are reiterating our buy recommendation on Lululemon (LULU) as the stock gapped up more than 10% following Q2 FY22 results. Attached is a report from Executive Director, Research Analyst Tristan d’Aboville and William O’Neil India Analyst Sanjoli Palsania.

European Weekly Summary

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

 

  • The Stoxx 600 lost 117bps last week, its second consecutive week of loss. The index has found support at its 50-DMA and thus remains in a Confirmed Uptrend with six distribution days.
  • Of the 17 indices we cover, 10 are in a Confirmed Uptrend and seven in an Uptrend Under Pressure. We downgraded Belgium, Switzerland, and Germany to Uptrend Under pressure and upgraded Norway to a Confirmed Uptrend.
  • All the sectors closed in the red, barring Consumer Cyclical. Health Care and Utility stocks were the major losers. Our rotation chart highlights the positive short-term momentum (over four weeks) among the leading (over 26 weeks) Health Care, Capital Equipment, and Consumer Staple stocks. Utilities and Technology, which have been underperforming for over 26 weeks, also continue to show improving short-term momentum. Inversely, the short-term momentum of Consumer Cyclical, Transportation, and Basic Material stocks continues to weaken.

Lululemon Athletica

Commentary:
Q2 FY22 Results: Revenue increased 61% y/y (56% y/y cc) to $1.45B, beating
consensus by 8% and EPS grew 120% y/y to $1.65, beating consensus by 39%.
The growth was mainly due to increased company-operated store and other net
revenue. This was primarily due to net revenue from retail locations, which
were temporarily closed during Q2 FY21 due to the COVID-19 pandemic.

O’Neil Consumer/Retail Weekly

Consumer Cyclical (XLY): The index made a new high this week but pulled back below its resistance of $185 and is consolidating along its 10-DMA. RS line is moving upward with an RS Rating is at 68 and A/D Rating is at D+. We recommend investors look for strong names breaking out of consolidation on good volume.

Consumer Staples (XLP): The index continues to trade sideways and is holding on to its 21-DMA after breaking out of a stage-one consolidation. RS line continues to lag but we are seeing improved momentum in the last few weeks. This might be due to flight of money towards safe stocks as valuations have hit record high worsening risk/reward ratio

Varun Beverages

Varun Beverages (VB1.IN) manufactures a wide variety of carbonated and non-
carbonated soft drinks as well as packaged drinking water. It is the second-largest

franchise/bottler of Pepsi in the world outside of the U.S. The company has been
associated with Pepsi since 1991.