Closing Recap

Tuesday, April 02, 2024

U.S. stocks finished broadly lower on Tuesday following a further spike in Treasury yields and commodity prices (oil 5-month highs), renewing concerns about inflation/prices and the pace of expected rate cuts going forward after mixed economic data so far this week. However, markets pared losses late in the day to finish near their best levels of the afternoon. Markets get a closer look at payroll figures for the next three days with ADP private payrolls tomorrow, weekly jobless claims Thursday and nonfarm payrolls on Friday. Gold hits record peak as investors flock to haven assets amid growing Middle East tensions, largely ignoring a stronger dollar and tempered bets for U.S. rate cuts. There were several Fed speakers today (Mester, Daly, and others) with consensus appearing to be, at this point, that standing pat is the right policy for the moment (meaning higher for longer vs. the market adamant stance of at least 3 rates cuts in 2024 – still down from 6 cut view when the year began).

In sector news, Smallcap stocks felt the greatest pain today, with the Russell 2000 falling over 1.8% amid broad sector related weakness (9 of 11 S&P sectors were lower and more than three of them down over 1% – including REITs, Healthcare, and Consumer Discretionary). Weakness in managed care/insurers (HUM, UNH, ELV) after CMS said late Monday that 2025 payment rates for Medicare Advantage plans will be largely identical to a January proposal the insurance industry had argued was too low. Homebuilders (TOL, LEN, KBH) shares tumbled, pressured by a spike in Treasury yields/analyst comments/downgrades in space. Apparel retail/luxury names fall behind lower guidance from PVH overnight sinking shares. Electric vehicle names fall (TSLA, RIVN) after Delivery/production estimates disappoint. Interest rate sensitive names (lending, dividend payers, etc.) pressured after the ISM data yesterday raised fears of less rate cuts this year by the Fed/prompting a jump in Treasury yields/the dollar.

• Factory Orders M/M for Feb rose 1.4% vs. consensus +1.0% and vs January (-3.8%); nondurables orders +1.6% vs Jan -0.8%; total manufacturing inventories +0.3% vs Jan -0.1%; Feb inventories/shipments ratio 1.47 months’ worth vs Jan 1.49 months.

• RIVN said it delivered 13,588 vehicles in Q1 vs. est. 13,000; produced 13,980 vehicles in the period which were generally in line with its guidance and mgmt backed its guidance for annual production of 57,000 vehicles in 2024 (ests. is for production of 54,000 vehicles).
• NIO was downgraded to Underweight from Equal Weight at Barclays’ and cut tgt to $4 from $5 saying weaker March sales suggest Nio’s troubles in selling its 2024 models, which launched in March, are putting its 2024 consensus estimates at "significant risk."
• Xiaomi shares rose overseas after the EV maker sporty electric vehicle launched last week drew strong interest, CEO said will start delivering first batch of Xiaomi cars on April 3rd; the new vehicles have been likened to Porsche’s Taycan and Panamera sports car models.
• GOEV shares tumbled after posted 4Q23 results that included revenue generation from delivering vehicles to its first commercial customers, issued lackluster full-year 2024 revenue guidance of $50-100M vs. est. $153M estimate and 2024 cash outflow guidance while raised a going concern doubt.

• In Food & Beverages: BF/B was upgraded to Neutral at Citigroup, noting they have been Sell-rated since its February 2023 initiation, with its thesis centered on an expected slowdown in the spirits category after the large acceleration post COVID, with high inventory levels at the distributor and consumer level as well as weaker macro conditions. MKC was upgraded to Buy from Hold at Argus with an $88 price target saying the company can reverse the weak volumes in certain regions while noting that it should also benefit from new products, enhanced packaging, and its ability to narrow the pricing gaps with private-label brands.
• In Retail: PVH shares slide over -20% as a beat on top and bottom line for Q4 was overshadowed by weaker guidance as sees FY24 op mgn approx flat vs 10.1% and EPS $10.75-11.00 vs est. $12.08; sees Q1 revs approx -11% (-3% from sales of Heritage Brands) vs est. -3.7% and EPS approx $2.15 vs est. $2.59. In firearms (SWBI, RGR), U.S. unadjusted criminal background checks rose 7.6% to 2.63 million in March, according to data from the FBI’s NICS data vs. y/y checks decreased 14% from 3.04 million.

• In Building Products: IBP PT raised from $226 to $272 and BLD PT raised from $469 to $527, maintains Outperform on both at Evercore/ISI as increases estimates, since both should directly benefit from higher new residential construction activity later this year.

• In Cruise lines (CCL, NCLH, RCL): Susquehanna said they believe that the slight deceleration in pricing gains for advertised fares in March is largely due to tough comps vs a slowdown in core demand, with global liner CCL last week pointing to a constructive supply and demand backdrop into 2H24. That said, the firm said they are continuing to watch the geopolitical landscape/recent bridge incident in Baltimore for any meaningful changes.

• In Industrials: GE finalizes its split into three public companies: GE Vernova (GEV) will begin trading on the NYSE this morning, GE Aerospace is launching as an independent company and will continue using the classic "GE" ticker. GE HealthCare (GEHC) became a standalone company in 2023. ETN was upgraded to Equal weight from Underweight at Barclays and raise tgt to $300 from $250 in Q1 Multi-Industry preview saying they favor shares of CARR, FTV, MMM, NVT, PH vs ALLE, ITW, LII, OTIS, ROK noting expectations are high, but accelerating organic sales growth for many names (vs Q1) likely lies ahead, and orders trends should look stronger in Q2 than Q1.
• In Solar: the sector sunk behind a jump in Treasury yields weighing on sectors that tend to need low rates to help industry with shares of FSLR, SEDG, ENPH, NOVA falling; ARRY was upgraded to Overweight from Equal Weight at Barclays and raised tgt to $18 from $15 as see some green shoots to indicate that it will be much more competitive on a go-forward basis, which could materialize in it taking back some share. The firm downgraded NXT to Equal Weight from Overweight ahead of earnings as thinks could ultimately hit the consensus revenue of $2.9B, which reflects a y/y increase of 17%, but is inclined to think initial outlook may be below this.
• In Industrial Metals: aluminum producers AA, CENX outperformed; in steel sector (NUE, STLD), BMO Capital noted spot HRC prices increased 2.5% over the past two weeks to $820/st (-25.5% YTD), with the recent increase attributed to mills holding firm offers and showing less willingness to negotiate after announcing base spot HRC price increases in early March. Gold miners remain strong behind the latest push in gold prices to all-time highs, approaching $2,300 an ounce, with NEM, AEM, GOLD rising.

• In Financials Services: MCO was upgraded to Overweight from EW at Barclays (said still prefer SPGI) saying after going through historical issuance, revenue, and maturity wall data to better understand what "normalized" revenue means for the CRAs they believe ests are underestimating the potential revenue uplift.

• BMEA was downgraded from Overweight to Neutral at JP Morgan and slashed tgt to $14 from $51 on the heels of Q4 results (per share loss of $0.98) and preliminary data from the COVALENT-112 study (BMF-219 for T1D).
• GRTS shares tumbled after announced 21.6Mm shares, including 13.3Mmn pre-funded warrants, for $32.5M as offering price of $1.50 represents ~36% discount to stock’s last sale. Accompanying warrants to buy up to additional 21.6Mm shares expire in one year, are exercisable immediately with exercise price of $1.65; GRTS also announced positive preliminary data from mid-stage study for its vaccine to treat colorectal cancer.
• ROIV announced that an autoimmune drug it acquired from PFE succeeded in a Phase 2 trial as it blocks two proteins, including TYK2, a hot target for industry in the last couple years; Roivant also said it would spend up to $1.5 billion on a share buyback program.
• VERV shares tumbled after pausing its enrollment of its early-stage study testing its gene editing therapy called VERVE-101 after a patient enrolled in the study experienced a severe drug-related adverse event (saw a rise in levels of a problem-causing liver enzyme and abnormally low levels of blood platelets).
• In Emerging Biotech: Goldman Sachs initiated coverage on MLYS and OLMA with Buys, both are late clinical-stage companies focused on diseases driven by abnormally elevated aldosterone and breast cancer therapies respectively. Launched Neutral rating on late clinical stage companies MLTX and RCKT who focus on inflammatory disease therapy and gene therapies for rare diseases.

• In Cannabis: the Florida Supreme Court approved the proposed amendment for adult use cannabis to be placed on the 2024 General Election ballot. While a favorable ruling had been largely anticipated, the decision will be well-received, given the revenue potential from a state that already generates close to $2 bn in annualized revenue from medical cannabis alone. Come November, to pass, the ballot initiative will need 60% voter approval according to a Wedbush report: shares of MSOS, TCNNF, CURLF, TLRY, CGC, ACB among movers.
• In Healthcare Technology: VEEV issued an 8-K reiterating total revenue and adjusted operating income guidance (for both F1Q and FY25) as well as disclosing that Brent Bowman will be exiting as CFO effective immediately, to be succeeded in the interim by former CFO Tim Cabral.
• In Medical Equipment: ANGO announced after the close that it reached a settlement with Bard following a 12-year IP litigation battle that covered various patents over port technology. ANGO will pay Bard $7M over the next 12 months with six annual $2.5M payments. QDEL shares fell after withdrew its submission for RVP4+ assay after recent data did not meet expectations.

• In Telecom: BCE was downgraded to Market Perform from Outperform at BMO Capital citing a slower growth outlook based on competitive pressures in core wireless and wireline operations, particularly in Quebec and challenging comps in media.
• In Software: ADSK shares slumped as the company filed to delay its 10-K annual report, citing an internal investigation on the company’s free cash flow, and adjusted operating margin practices.
• In Semiconductors: Barclay’s downgraded Aixtron (AIXXF) to EW from OW and upgraded BE Semiconductor (BESIY) to OW from EW saying AI continues to drive divergence in EU semis. Large investments are being suggested and could start to drive increased investments in the next 12 months. Estimates need to catch up but risk remains to the upside based on BARC’s new proprietary global wafer model.