Closing Recap

Tuesday, December 10, 2024

The waiting game continued for Wall Street as major U.S. averages finished slightly lower, holding in a relatively tight trading range for the S&P 500 ahead of the consumer price index (CPI) inflation reading tomorrow morning at 8:30 AM ET, which could give more clues as to the pace of additional rate cuts (if any) by the Fed next year. Headline and core inflation is expected to have risen slightly last month, but Fed fund futures are still banking on a 25-bps cut at next week’s FOMC meeting following last week’s jobs strong data. The last two trading days were light volume, narrow ranges with big gains in big tech/communication names (GOOGL, TSLA, META) helping offset weakness in Materials (XLB down a 7^th day), REITs, Utilities and semiconductors/software weighing on tech today (after ORCL, MDB earnings impact, which weighed on other names DELL, HPE, etc.). Central bank news picks up steam with the ECB, BCB and SNB all expected to cut rates in the next few days while the Reserve Bank of Australia (RBA) kept the cash rate at 4.35% last night as fully expected. In late day news, two M&A deals appear to be blocked with shares of Albertson’s (ACI) falling as a federal judge blocked its $25B merger and U.S. Steel (X) plunged on reports the White House will kill the merger with Nippon Steel (more below).

• Today, U.S. Q3 non-farm productivity unrevised at +2.2% (vs. consensus +2.2%) while U.S. Q3 non-farm unit labor costs revised to +0.8% (consensus +1.5%), vs. prior +1.9%.

• Treasury yields edged higher and held with the 10-yr around 4.23% most of the afternoon. The U.S. sold $58B 3-year notes at high yield 4.117% vs. 4.116% when issued, down from the previous 4.152% and below the six-auction average of 4.056%. The bid-to-cover ratio was 2.58, slightly below the previous 2.6; Primary dealers take 15.11% of U.S. 3-year notes sale, direct 20.71% and indirect 64.18%.
• February gold prices rose $32.60 or 1.2% to settle at $2,718.40 an ounce, despite a bounce in the dollar (DXY +0.3% at 106.44) ahead of inflation data tomorrow (CPI).
• Arabica coffee futures hit new highs Tuesday, pushing past a record set in April 1977 (the most traded arabica futures contract, for March delivery, ended at $3.3415 a pound after trading as high as $3.4835). Futures prices have nearly doubled over the past year and have jumped more than 35% since October over worries for the Brazilian crop.

• In Auto Retail: AZO missed Q1 estimates as EPS of $32.52 missed consensus $33.64 and revs rose 2% y/y to $4.28B but was slightly below the consensus $4.31B hurt by higher raw material prices and a stronger dollar; Q1 comp sales +0.4% vs. +3.4% y/y, and Domestic comp sales +0.3% vs. +1.2% y/y (AAP, ORLY other auto retailers).

• DBI shares tumbled after Q3 EPS and sales missed consensus and cut FY profit view to $0.10-$0.30 (from $0.50-$0.60) and sales forecast (to be down in low single-digit percentage vs prior forecast of flat to low single digits) citing unseasonably warm weather and consumers putting off discretionary purchases.
• GIII Q3 EPS of $2.59 topped the $2.27 estimate and sales rose 1.8% y/y to $1.09B, just below the $1.1B estimate while saying 3Q end inventories were down (-10%), cuts its FY25 sales view to about $3.15B from about $3.2B, but raises annual net income forecast to $185M-$190M from $179M-$184M.
• OLLI shares rise as Q3 profit and sales topped consensus and Q3 margin rises 100 bps to 41.4% while said still comparable sales fall wider-than-expected at 0.5% in Q3; trimmed its annual sales forecast.
• In Food: UNFI shares surged after reported better-than-expected profits and net sales for Q1 and boosted its annual net sales forecast and raised the low-end of its year adjusted EPS and adjusted Ebitda forecast ranges. Raises FY25 adj EPS view to 40c-80c from 20c-80c. In Dining: WING rises initially after the Financial Times reported that Domino’s Pizza Group and Sixth Street are among bidders interested in Wingstop’s UK franchise.
• In Grocers: Shares of ACI tumbled in the final hour of trading and KR shares popped higher after Bloomberg reported the Kroger’s $24.6B for Albertsons deal blocked by federal judge, finding the takeover would lessen competition for US grocery shoppers. https://tinyurl.com/48s2ajds

• In Homebuilder research: KBW downgraded DHI and TOL to Market Perform on homebuilding caution while recommends pair trade: Long DHI / short TOL based on divergence in P/BV valuation. AMH : Remain Market Perform on 3-4% AFFO growth and valuation (20-22x 2025-2026 AFFO, 5.4% cap rate
• In Plumbing/HVAC: FERG shares dropped after posted a quarterly profit that missed estimates.

• Mortgage Insurers/Title: KBW Inc. said for 2025, higher rates favor mortgage insurers over title & originators as they are most positive on the mortgage insurers going into 2025 and remain Outperform on ESNT (and are downgrading MTG to Market Perform on valuation). While title insurers appear relatively well positioned to grow margins and earnings in 2025, they see limited positive catalysts in the near term for the shares, so downgrade FAF to MP (already MP on FNF). Also downgraded RKT to Underperform as the outlook suggests a challenging backdrop for mortgage originators with a high concentration in the refinance market.
• Commercial Real Estate (CRE): JLL was upgraded to Outperform at KBW Inc as margin expansion on transaction volumes, cheap valuation. STWD was named the best CMREIT pick at KBW due to diversification, liquidity, manageable CRE credit, and Woodstar upside. NMRK is the largest capital markets/leasing exposure. Discounted valuation though Lutnick share divestment a short-term risk.

• Monthly AUM data released today: 1) CNS preliminary assets under management of $91.4 billion as of November 30, 2024, an increase of $1.7 billion from assets under management of $89.7 billion at October 31, 2024; 2) IVZ preliminary month-end assets under management (AUM) of $1,856.5 billion, an increase of 4.8% versus previous month-end. The firm delivered net long-term inflows of $11.0 billion in the month; 3) LAZ preliminary assets under management as of November 30, 2024, totaled approximately $234.4 billion.

• MRNA shares slumped this afternoon as the FDA highlights safety challenges and development needs for pediatric RSV vaccines amid historical concerns and recent mRNA trial pauses; focus on addressing unmet needs for infants and toddlers.
• QURE shares jumped after the company reached an agreement with the FDA on key elements of an accelerated approval pathway for AMT-130 in Huntington’s Disease.

• In Healthcare Technology: HQY reported Q3 results that came in above consensus on several key financial and operational metrics as revs of $300.4M (+21% Y/Y) exceeded est. $290.1M on better EPS ($0.78 vs. $0.71) on better adj EBITDA of $118.2M (+24% Y/Y); guided next year revs $1.28B-$1.3B vs. est. $1.32B. PHR reported a bottom-line beat with adj. EBITDA margins of ~9% topping consensus of ~7.5%; narrowed its revenue guide for the full year but raised its profit guidance by ~22%.
• In Healthcare Facilities/Services: WBA shares surged over 20% midday after the WSJ reported the company is in talks to sell itself to private-equity firm Sycamore Partners in a deal that could be completed early next year https://tinyurl.com/rwyrb3vn ; ACHC mentioned cautiously at Cantor saying its Q4 survey suggests referrer weakness may have intensified in Nov. vs. Oct.; bed shortage indicated by respondents suggests there is floor protection, but they believe we have not reached that level yet. Our survey suggests that there was a deterioration of referrer opinion of ACHC in 4Q24 from 3Q24.

• In Package Delivery: UPS was upgraded to Outperform at BMO Capital but lowered its tgt to $150 from $155 saying while the firm continues to have concerns regarding the trajectory of UPS’s Domestic operating margins over the medium-to-long-term, it believes that a combination of cyclical tailwinds; moderating unit cost inflationary pressures, and low valuation render the near-term risk/reward favorable.
• In Shipping: The Baltic dry index fell to 15-month lows, falling -12 points to 1,156 points, its lowest level since Sept. 2023 as the Capesize index dropped -29 points to 1,503 points, also hitting its lowest level since Sept. 2023. The Panamax index edged down -2 points to 1,077 points. And the Supramax index was down 4 points at 967 points, its lowest level since August 2023.
• In Packaging: BALL was upgraded to Outperform on recent pullback at Mizuho noting Ball is the global leader in BevCan, is buying back shares, and has financially de-risked the balance sheet (net leverage at 2.2x). Despite recent misplaced concerns about pricing and volume, doesn’t believe earnings are at risk, or fundamentals have changed.
• In Metals: U.S. Steel (X) shares tumbled late day after Bloomberg reported President Biden set to finally kill the Nippon Steel purchase of US Steel on national security grounds once the deal is referred back to him later this month. https://tinyurl.com/cy9caryy

• PL reported FQ325 results in-line with guidance on the topline but well ahead of profitability expectations, but shares slipped as while exceeded consensus expectations across most guided metrics in F3Q25, revenues of $61.3M came in just shy of consensus expectations for $63.2M, due to a delayed renewal. The contract was an $18.5M per year existing engagement for the NASA Commercial SmallSat Data Acquisition contract.

• In Media: WBD positive mention at Keybanc as remain Overweight and raise PT to $14 from $11 calling it one of their favorite ideas entering ’25 given the multiple of potential positive catalysts. The firm raises ests to reflect its incremental confidence in improving Studios and DTC profitability, along with CMCSA affiliate renewal. VMEO was upgraded to Overweight at Piper noting mgmt has spent the last two years resetting the cost structure while the Enterprise business has flourished and now at $100MM+ annual run rate; raise tgt to $10.
• In Telecom: Barclay’s downgraded European telecom names BT Group (BTGOF) and KPN (KLPNY) to EW from Overweight and upgraded Telecom Italia (TIIAY) to Overweight from EW saying investing in high quality and/or momentum is typically the best route in EU Telecoms. This is set to continue in 2025, in the firm’s view, but it believes potential consolidation means exposure to "recovery" names also makes sense. Bernstein initiating coverage of three Telecom stocks: T (OP, $28), TMUS (MP, $265), and VZ (MP, $48). CHTR shares rebound after bullish broadband commentary from CEO at UBS conference says CNBC
• In Towers: CCI was downgraded to Underweight at Wells Fargo saying their view is that private market demand for CCI’s fiber/small cell assets is limited, and they’re unlikely to fetch more than $9B in a divestiture, which would be ~20-25% dilutive to AFFO/share and likely force CCI’s hand to cut its dividend (which would create near-term technical pressure). Assuming a $9B deal, CCI’s pro-forma business would trade at ~22x cash AFFO or ~23x EBITDA.
• In Semiconductors: The semi sector (SOX) fell for a 2^nd straight day, with the SOX index down more than 2% midday in a breather. MU rises after the U.S. Department of Commerce has finalized a subsidy of more than $6.1B for the memory chip maker to support the construction of several domestic semiconductor facilities.

• ORCL reported FQ2 results, with slight misses on revenue and EPS due to FX headwinds (flat vs a 1% tailwind expected), and RPO growth decelerated (49% y/y vs 52% in F1Q) and IaaS/total rev growth in line at 52%/9% y/y while FY25 guidance was reiterated (>50%/>10% IaaS/total rev growth); Q3 non-GAAP EPS of 1.47-$1.51 below consensus $1.57 on as-reported revenue growth of 7-9% (consensus 10%) with a 2% negative FX impact.
• MDB shares jumped more than 10% overnight after Q3 beat/guidance raise, driven by solid upside on Atlas and more meaningful upside on EA (Q3 revenue beat by 33M vs ~$12M the prior two quarters) and OM was >700bps better while Q4 revenue guided above by $11M and FY25 EBIT margins raised nearly 250 bps. Shares reversed as mgmt explained upfront revenue from multiyear deals drove ~half of Q3 upside; CFO, COO also depart.
• TeamViewer reached a deal with Carlyle Group to buy workplace-software company 1E at an enterprise value of $720 million, aiming to bolster its offering and expand in North America.