Closing Recap

Monday, April 22, 2024

U.S. stocks opened the week in solid fashion, with broad based gains as all eleven S&P sectors finished sharply higher ahead of a busy week of data/earnings. The S&P 500 (SPX) bounced more than 60 points off 4,970 morning lows, surging after reclaiming the 5,000 level to highs around 5,038 ahead of a very busy week of earnings and key data, before giving back a portion this afternoon. Note coming into the day, the SPX was down 5.9% from its peak on March 28, the first pullback of the year. With today’s bounce, both the S&P 500 and Nasdaq snapped their respective 6-day losing streaks. There was no major U.S. economic data today, but things pick up as the week progresses. The same can be said for earnings, with a massive overload of S&P 500 components reporting on Tuesday, Wednesday, and Thursday. Note over ~43% of the S&P 500 market cap reports this week with highlights TSLA, UPS, Visa, GE on Tuesday, META, BA, IBM, AT&T (T) on Wednesday, GOOGL, MSFT, CAT, CMCSA, INTC on Thursday along with more econ data (1Q24 GDP) and then Friday CVX, XOM, ABBV and the Fed’s preferred inflation reading, March PCE/core PCE. Gold prices were crushed today, falling over 2.75% from recent highs with no escalations of tensions this weekend in the Middle East. Treasury yields little changed ahead $183B of 2, 5 and 7yr Treasury supply coming to auction this week. In stocks news, TSLA shares fell for a 7^th straight day, and now down 64% from November lows ahead of earnings tomorrow night (4/23). The CBOE Volatility index (VIX) tumbled over 10%. In an interesting tidbit: The New York Stock Exchange is considering a proposal for 24/7 trading, according to the Financial Times…so the stock market would never close much like crypto markets are now.

• Sterling falls below $1.23, lowest since Nov 14, then steadies off 0.30% at $1.2333 but overall, the dollar index (DXY) was little changed holding above the 106 level, flat vs the euro at 1.0655. Treasury yields also little changed ahead of several bond auctions and economic data that could move the needle. Note $183B of 2, 5 and 7yr Treasury supply comes to auction this week and on Thursday GDP and Friday PCE inflation data.

• In Restaurants: PZZA was upgraded from Sell to Hold at Stifel and raise tgt to $65 from $60 saying 2024-2025 outlook remains unchanged, but Stifel believes near-term expectations are reasonable, and given the stock’s negative sentiment and recent market volatility, it decided to move to the sidelines. Raymond James said shares of SHAK, EAT, FWRG, CMG, and BLMN remain top long ideas in restaurants into Q1 as the firm maintains a selective stance towards its restaurant universe as industry sales have underwhelmed in recent months causing US to increasingly favor stocks with idiosyncratic factors trading at attractive valuations.
• In Food space: KR and ACI will sell an extra 166 stores to C&S Wholesale Grocers under an amended deal to get regulatory approval for their proposed $25 billion merger, the companies said on Monday. Under the new agreement, C&S will pay Kroger an all-cash consideration of about $2.9 billion, up from the previous payout of $1.9 billion.

• In Casino/Gaming: Shares of LVS, WYNN rebound after falling last week; Bank America noted after industry checks, weekly ADR increased by 2% WoW to MOP600M. VIP win rate also improved.

• In Solar: Piper said expects ENPH/SEDG (90% of mkt resi market) to indicate continued soft US solar sell-thru in 1H’24 (+constructive storage commentary) while RUN/NOVA highlight favorable demand associated with upfront savings on lease/PPA products. Canaccord notes higher-for-longer interest rate environment in the U.S. continues to be a pacing challenge for the rooftop solar industry (ENPH, SEDG). The firm said given the challenges such an environment poses for a recovery in consumer demand for the residential solar equipment industry (including inverters, panels, power optimizers and home batteries). To be approved for loans Canaccord found, borrowers had to have a minimum credit score of 622. Among the home project/upgrade loans Canaccord identified, the avg. interest rate was ~20.09%, which comprised an average rate of 8.77% for those with good credit and an avg. rate of 31.41% for those with poor credit.
• In Chemicals: NGVT was upgraded to Buy from Hold at Jefferies and raised tgt to $62 from $52 saying Hybrid sales are outpacing EV sales, bolstering activated carbon volumes, and likely leading a 4% increase in segment sales and a 7% increase in EBITDA through 2026; FCF/Sales was 9% in 2023 and likely jumps to 16% in 2024.
• In Metals & Mining: AA was upgraded to Equal Weight from Underweight at Morgan Stanley as thinks the operational concerns that persisted throughout 2023 have largely been de-risked and it now sees a more balanced risk-reward. Precious metals declined overnight amid no escalation of tensions in Middle East this weekend, ushing gold and silver miners lower, dampening demand for safe havens as traders turn their attention to the outlook for monetary policy (shares of NEM, AEM, GOLD, KGC, PAAS were all lower).
• In Industrials, Machinery & Tools: Sandvik (SDVKY) shares fell overnight after reporting Q1 core profit below market expectations and Q1 adj. EBITA falls 14% y/y to SEK 5.28 billion ($484 million), missing the 5.69 billion Reuters est. CNHI was downgraded to Neutral from Buy at Bank America following the "surprising" CEO change announced on Sunday which they say adds uncertainty around the company’s transformation.

• In Banks: Raymond James noted with the first full week of the 1Q24 bank earnings season behind us, 66% of reporting banks beat consensus forecasts, improving from the 40% beat rate in 4Q23 and 53% beat rate last 1Q. Results thus far have demonstrated a deceleration of revenue pressures, down 0.5% at the median (vs. -1.5% in 4Q23 and -3.5% last 1Q) as NIM headwinds and tepid loan growth have weighed on NII results and offset stronger fee income from the prior quarter. Looking to NIM, the median NIM contracted 2 bp from 4Q to 3.18% (vs. -3 bp in 4Q23 and -22 bp last 1Q), with the 11 bp median lift to earning asset yields outstripped by the 12 bp rise in cost of funds, fueling the median sequential NII decline of 1.8% (vs. -0.7% in 4Q23 and -4.5% last 1Q).
• Bank earnings today: BOH Q1 EPS $0.87 vs. est. $0.88; Q1 Net interest income $113.9M, vs. est. $117.5M, non-interest income $42.3M, and Net interest margin 2.11% vs. est. 2.15%. TFC reported Q1 EPS $0.90 vs. est. $0.80 while net interest income (NII) declines 12.5% to $3.43B and net interest margin (NIM) to 2.89% vs. 3.17% y/y. ZION forecasts Q1 2025 net interest income (NII) to be stable to slightly increasing vs. Q1 2024 levels and expects continued NII stability with potential upside, particularly if short-term interest rates decline.
• In Crypto: Bernstein noted as the Bitcoin network validated the 8,40,000th block, Bitcoin block rewards for miners were cut from 6.25 / block to 3.125/ block. While this event is considered healthy for the network and long-term value of bitcoin, it is considered challenging for the miners who witness a ‘halving’ of their Bitcoin rewards. However, a new token protocol launch on Bitcoin (Runes) has led to transaction fees of a~19 BTC per block (~$1M per block) over & above the 3.125 BTC subsidy earned by the miners i.e miners earned three-fold revenues post halving – 22 BTC vs ~7 BTC before halving (watch shares of CLSK, MARA, RIOT).
• In Real Estate: CSGP agreed to acquire all outstanding shares of MTTR in a cash and stock transaction valued at $5.50 per share reflecting an estimated $1.6B of enterprise value. Under the terms and subject to the conditions of the agreement, Matterport stockholders will receive $2.75 in cash and $2.75 in shares of CoStar Group common stock for each share of Matterport common stock.

• GH said the Molecular and Clinical Genetics Panel of the U.S. FDA Medical Devices Advisory Committee is scheduled to review the premarket approval application for the company’s Shield blood test for colorectal cancer (CRC) screening on Thursday, May 23, 2024.
• HEPA said late Friday it ends Phase 2 study for Ascend-Nash drug due to resource constraints.
• MDGL was initiated at Underperform and $150 tgt at Bank America, sending shares lower.
• MLEC said the Animal and Plant Health Inspection Service of the U.S. Department of Agriculture has concluded its Regulatory Status Review for Moolec’s genetically engineered soybean, Piggy Sooy.
• SNY will pay more than $100 million to settle about 4,000 lawsuits accusing the French drugmaker of failing to warn users that its Zantac heartburn medicine could cause cancer.
• VNDA declines after the Supreme Court declined to hear a bid by the Co to revive patents for its sleep-disorder drug Hetlioz that were previously declared invalid in a dispute with TEVA and Apotex.

• CRM talks to buy INFA fizzle, the WSJ reported last night. Talks between Salesforce and data-management software firm Informatica have fizzled after the companies couldn’t agree on terms, according to people familiar with the matter – WSJ https://tinyurl.com/yy2y6u55  . INFA said this morning that it is not currently engaged in any discussions to be acquired, the company said Monday after media reports of takeover interest from Salesforce.
• In Telecom: Dow component VZ reported Q1 adj eps $1.15 above est. $1.12 and revs $33B vs. est. $33.21B and said they lost fewer-than-expected net postpaid phone subscribers, as consumer gross additions ticked up and churn improved. Total Q1 retail postpaid phone net losses were -68K vs. ests. roughly -100K losses and vs. -127K losses y/y; Postpaid net additions landed ahead at 253k vs street at 228k. FCF came in below expectations, though Evercore/ISI said, “for now we assume it was mostly timing related.”
• In Media: CNBC’s David Faber said this morning that representatives from SONY have not been in contact with the special committee formed by PARA’s board to review alternatives and offers, citing sources. Previously, on April 18, the New York Times reported that Sony Pictures and APO have been in talks over partnering for a possible joint offer to buy Paramount.
• In Social media: the US House on Saturday put legislation forcing TikTok’s Chinese parent ByteDance Ltd. to divest its ownership stake on a fast track to become law, tying it to a crucial aid package for Ukraine and Israel. Following the House’s passage of the divest-or-ban bill on Saturday Regarding TikTok, DBAB analyzes the potential ramifications for TikTok’s US competitors including META, SNAP, and GOOG. DBAB estimate that every 10% shift of total TikTok US engagement to its competitors drives an incremental $7 in value/share for Snap (60% upside from today’s levels), $19/share (4% upside) for Meta, with the impact to Alphabet insignificant given the lower relative margins for YouTube.
• ORCL announced the accreditation of three cloud regions for the U.S. Department of Defense (DoD) with Defense Information Systems Agency (DISA) Impact Level 6 (IL6) authorization to host Secret classified workloads.
• SE was upgraded to Buy at Bank America and raise tgt to $70 from $62 saying the latest data points from SE Asian mkts indicate SEA’s online platform, Shopee, and other platforms have gradually raised take-rates avg 3-7% to 5-10%. The firm believes Shopee is well placed to defend its mkt share & find competitors’ vulnerable.

• WDC was downgraded from Outperform to Market Perform at Raymond James, primarily on valuation saying while fundamentals in HDD and NAND markets should continue to improve, the stock has rallied past tgt price.
• WOLF shares popped this afternoon after Reuters reported activist investor Jana Partners is urging Wolfspeed, the world’s largest maker of silicon carbide, to explore ways to improve shareholder value, including a potential sale.